Container carriers banding together on digital development

Traxens, owned by CMA CGM and Mediterranean Shipping Co., needed the support of another large carrier, and the top prize would, of course, be the world’s largest, Maersk. For its part, Maersk needed other carriers to join TradeLens, its blockchain and visibility joint venture with IBM, especially after an IBM executive said last autumn that without other carriers joining, “we don’t have a product.”

So in just over 24 hours during Memorial Day weekend, the deals were announced in quick succession, and, immediately, Traxens and TradeLens had fewer questions about their paths forward.

But to what degree the discussions in Geneva, Marseille, and Copenhagen were all-inclusive ultimately is beside the point. It is less a question of the motivations behind the announcements and more about the bigger picture of why the stars aligned in the first place, and why now.

This wasn’t a deal between a carrier and a startup or other tech firm, but rather a deal among carriers themselves. Those involved are different in many ways, but as vessel operators and asset players, all are similarly situated, staring at more or less the same strength, weaknesses, opportunities, and threats (SWOT) analysis.

Gone are the days when carriers looked to put each other out of business through rate wars. (Maersk CEO Soren Skou appeared to react angrily on the May 24 first-quarter earnings call to the suggestion that it initiated a rate war in the Asia-Europe trade.)

In its place, at least among large carriers that survived the historic wave of consolidation over the past three years, is a sense that they will sink or swim together.

The possibility of sinking, or at least being rendered irrelevant, can’t be ruled out. Irrelevance for carriers means being sidelined to the role of providing commoditized vessel capacity for port-to-port transits, selling through intermediaries, and getting their profits from timing on the buying, selling, and chartering of ships, cost-cutting, and luck.

Carriers know what this feels like, but if they wanted that for their future, they wouldn’t have so summarily rejected the opportunity a decade ago to hedge against adverse spot freight rate movements using derivative contracts.

No, the rewards are far greater being in the game of creating value for customers’ supply chains. The biggest risk is not being in the game. Although carriers have been behind the curve on technology, with cost control undermining the ability to invest, they are lucky that even today the most technologically enabled forwarders aren’t that far ahead, and they can still recover from prior missteps such as INTTRA — which carriers created in an earlier defensive move against technology firms but which ended up handling more than 25 percent of global bookings and being owned and controlled by whom? A tech firm.

In terms of where carriers sit, catching up to a legacy or even an upstart “digital” forwarder is one thing. But playing on the same field as the likes of Amazon, given its rapidly growing interest in logistics, and despite the global market being arguably large enough for many players, requires a new focus by carriers.

If Amazon built a cloud for its own purposes and then sold it as a service, creating Amazon Web Services, the runaway market leader in cloud, why would it not do the same in international logistics?

For legacy players, that’s sobering. At $241 billion in 2018 revenue, Amazon is six times larger than Maersk in revenue terms and was declared by analyst Satish Jindal to be the largest third-party logistics provider (3PL) in the world, larger than DHL. But it’s Amazon’s underlying skill in data management that is the biggest threat and part of the backdrop explaining why carriers are actively retooling, by shifting investment away from ships and toward data and end-to-end service offerings.

Maersk reinventing itself as a self-described integrated carrier in container logistics is an example of the lengths to which a carrier now must go to prepare for a fundamentally different future.

A key test in the coming years will be the value of assets, not just vessels but also marine terminals, and critically, controlling and creating value out of the data underneath. Doing that will differentiate the carriers. Until now, carriers have freely disseminated the data that customers rely on for cargo visibility.

But it’s one thing for UPS to provide an end-consumer with free access to status updates. It’s another for a carrier to provide that for free to an intermediary that will turn around and profit from it. Carriers increasingly are focusing on this, although it gets to the unresolved question of who owns shipment data.

Carving out a leading position in blockchain through TradeLens, securing a foothold in Internet of Things-based track-and-trace data, must be viewed chiefly as competitive maneuvering to secure a future role for carriers in creating value for customers’ supply chains.